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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)



|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended June 30, 2005



OR



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------



For the transition period from  to



Commission File Number: 0-24589



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BCSB BANKCORP, INC.

(Exact Name of Registrant as Specified in its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|United States                                                  |  | 52-2108333                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



4111 E. Joppa Road,
Suite 300, Baltimore, Maryland 21236

(Address of Principal Executive Offices)



(410) 256-5000

(Issuers Telephone Number, Including Area Code)



N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)



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Indicate by check ü whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



Indicate by check mark ü whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ̈No  x



As of June 30, 2005, the issuer had 5,902,548 shares of Common Stock issued and outstanding.



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##### Table of Contents

CONTENTS



|                                           |  |                                                                                                                        |  |     
|------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------- |  | ----
|                                           |  |                                                                                                                        |  | PAGE
|PART I. FINANCIAL INFORMATION              |  |                                                                                                                       
|                                           |  |                                                                                                                       
|Item 1.                                    |  | Financial Statements                                                                                                   |  | 2   
|                                           |  |                                                                                                                       
|                                           |  | Consolidated Statements of Financial Condition as of June 30, 2005 (unaudited) and September 30, 2004                  |  | 3   
|                                           |  |                                                                                                                       
|                                           |  | Consolidated Statements of Operations for the Nine and Three Months Ended June 30, 2005 and 2004 (unaudited)           |  | 4   
|                                           |  |                                                                                                                       
|                                           |  | Consolidated Statements of Comprehensive Income for the Nine and Three Months Ended June 30, 2005 and 2004 (unaudited) |  | 5   
|                                           |  |                                                                                                                       
|                                           |  | Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2005 and 2004 (unaudited)                     |  | 6   
|                                           | 
|Notes to Consolidated Financial Statements |  | 8                                                                                                                     
|                                           |  |                                                                                                                       
|Item 2.                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                  |  | 11  
|                                           |  |                                                                                                                       
|Item 3.                                    |  | Quantitative and Qualitative Disclosures About Market Risk                                                             |  | 25  
|                                           |  |                                                                                                                       
|Item 4.                                    |  | Controls and Procedures                                                                                                |  | 25  
|                                           | 
|PART II. OTHER INFORMATION                 |  |                                                                                                                       
|                                           |  |                                                                                                                       
|Item 1.                                    |  | Legal Proceedings                                                                                                      |  | 26  
|                                           |  |                                                                                                                       
|Item 2.                                    |  | Unregistered Sales of Equity Securities, and Use of Proceeds                                                           |  | 26  
|                                           |  |                                                                                                                       
|Item 3.                                    |  | Defaults Upon Senior Securities                                                                                        |  | 26  
|                                           |  |                                                                                                                       
|Item 4.                                    |  | Submission of Matters to a Vote of Security Holders                                                                    |  | 26  
|                                           |  |                                                                                                                       
|Item 5.                                    |  | Other Information                                                                                                      |  | 26  
|                                           |  |                                                                                                                       
|Item 6.                                    |  | Exhibits                                                                                                               |  | 26  
|                                           | 
|SIGNATURES                                 |  | 27                                                                                                                    
|                                           | 
|CERTIFICATIONS                             |  | 29                                                                                                                    



1



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##### Table of Contents

PART I. FINANCIAL INFORMATION





Item 1. Financial Statements



2



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                    |  | June 30,2005           |         |   | September 30,2004 |  
|                                                                                                                                                                    |  | (unaudited)            |         |   |                   |  
|                                                                                                                                                                    |  | (dollars in thousands) |        
|Assets                                                                                                                                                              |  |                        |         |   |                   |   |         |  
|Cash and due from banks                                                                                                                                             |  | $                      | 19,923  |   |                   | $ | 14,852  |  
|Interest bearing deposits in other banks                                                                                                                            |  |                        | 1,481   |   |                   |   | 2,579   |  
|Federal funds sold                                                                                                                                                  |  |                        | 328     |   |                   |   | 384     |  
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Cash and Cash Equivalents                                                                                                                                           |  |                        | 21,732  |   |                   |   | 17,815  |  
|                                                                                                                                                                    |  |                       
|Interest bearing time deposits                                                                                                                                      |  |                        | 100     |   |                   |   | 100     |  
|Investment securities, available for sale                                                                                                                           |  |                        | 152,295 |   |                   |   | 158,948 |  
|Investment securities, held to maturity                                                                                                                             |  |                        | 1,995   |   |                   |   | 2,497   |  
|Loans receivable, net                                                                                                                                               |  |                        | 433,344 |   |                   |   | 386,136 |  
|Mortgage backed securities, available for sale                                                                                                                      |  |                        | 127,950 |   |                   |   | 144,260 |  
|Mortgage backed securities, held to maturity                                                                                                                        |  |                        | 28,058  |   |                   |   | 26,631  |  
|Premises and equipment, net                                                                                                                                         |  |                        | 10,455  |   |                   |   | 9,240   |  
|Federal Home Loan Bank of Atlanta stock, at cost                                                                                                                    |  |                        | 7,512   |   |                   |   | 6,105   |  
|Bank owned life insurance                                                                                                                                           |  |                        | 12,504  |   |                   |   | 11,912  |  
|Goodwill                                                                                                                                                            |  |                        | 2,294   |   |                   |   | 2,294   |  
|Accrued interest and other assets                                                                                                                                   |  |                        | 8,362   |   |                   |   | 7,680   |  
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Total assets                                                                                                                                                        |  | $                      | 806,601 |   |                   | $ | 773,618 |  
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Liabilities and Stockholders Equity                                                                                                                                |  |                        |         |   |                   |   |         |  
|Liabilities                                                                                                                                                         |  |                        |         |   |                   |   |         |  
|Deposits:                                                                                                                                                           |  |                        |         |   |                   |   |         |  
|Non-interest bearing                                                                                                                                                |  | $                      | 24,419  |   |                   | $ | 19,309  |  
|Interest-bearing                                                                                                                                                    |  |                        | 574,132 |   |                   |   | 561,313 |  
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Total Deposits                                                                                                                                                      |  |                        | 598,551 |   |                   |   | 580,622 |  
|                                                                                                                                                                    |  |                       
|Short Term Advances from the Federal Home Loan Bank of Atlanta                                                                                                      |  |                        | 45,270  |   |                   |   | 43,000  |  
|Long Term Advances from the Federal Home Loan Bank of Atlanta                                                                                                       |  |                        | 88,000  |   |                   |   | 77,920  |  
|Junior Subordinated Debentures                                                                                                                                      |  |                        | 23,197  |   |                   |   | 23,197  |  
|Other liabilities                                                                                                                                                   |  |                        | 7,954   |   |                   |   | 4,750   |  
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                   |  |                        | 762,972 |   |                   |   | 729,489 |  
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Commitments and contingencies                                                                                                                                       |  |                        |         |   |                   |   |         |  
|Stockholders Equity                                                                                                                                                |  |                        |         |   |                   |   |         |  
|Common stock (par value $.01  13,500,000 authorized, 5,902,548 and 5,899,173 shares issued and outstanding At June 30, 2005 and
September 30, 2004 , respectively) |  |                        | 59      |   |                   |   | 59      |  
|Additional paid-in capital                                                                                                                                          |  |                        | 21,083  |   |                   |   | 20,969  |  
|Obligation under Rabbi Trust                                                                                                                                        |  |                        | 1,221   |   |                   |   | 1,222   |  
|Retained earnings (substantially restricted)                                                                                                                        |  |                        | 25,334  |   |                   |   | 25,407  |  
|Accumulated other comprehensive loss (net of taxes)                                                                                                                 |  |                        | (2,447  | ) |                   |   | (1,755  | )
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|                                                                                                                                                                    |  |                        | 45,250  |   |                   |   | 45,902  |  
|Employee Stock Ownership Plan                                                                                                                                       |  |                        | (456    | ) |                   |   | (593    | )
|Stock held by Rabbi Trust                                                                                                                                           |  |                        | (1,165  | ) |                   |   | (1,180  | )
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                          |  |                        | 43,629  |   |                   |   | 44,129  |  
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  
|Total liabilities and stockholders equity                                                                                                                          |  | $                      | 806,601 |   |                   | $ | 773,618 |  
|                                                                                                                                                                    |  |                        |         |   |                   |   |         |  



The accompanying notes to consolidated
financial statements are an integral part of these statements.



3



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland



CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------ |  | -------------------------------------------- | ------ | - | ---------------------------------- | - | ------ | ---- |  | - | ----- | - |  | - | ----- | -
|                                                             |  | For the Nine Months EndedJune 30,            |        |   | For the Three Months EndedJune 30, |  
|                                                             |  | 2005                                         |        |   | 2004                               |   |        | 2005 |  |   | 2004  |  
|                                                             |  | (Dollars in thousands except per share data) |       
|Interest Income                                              |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Interest and fees on loans                                   |  | $                                            | 17,646 |   |                                    | $ | 16,529 |      |  | $ | 6,106 |   |  | $ | 5,466 |  
|Interest on mortgage backed securities                       |  |                                              | 4,813  |   |                                    |   | 3,972  |      |  |   | 1,574 |   |  |   | 1,501 |  
|Interest and dividends on investment securities              |  |                                              | 4,159  |   |                                    |   | 3,162  |      |  |   | 1,423 |   |  |   | 1,290 |  
|Other interest income                                        |  |                                              | 51     |   |                                    |   | 82     |      |  |   | 16    |   |  |   | 19    |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Total interest income                                        |  |                                              | 26,669 |   |                                    |   | 23,745 |      |  |   | 9,119 |   |  |   | 8,276 |  
|                                                             |  |                                              |        |  
|Interest Expense                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Interest on deposits                                         |  |                                              | 10,778 |   |                                    |   | 10,099 |      |  |   | 3,713 |   |  |   | 3,400 |  
|Interest on borrowings  short term                          |  |                                              | 942    |   |                                    |   | 291    |      |  |   | 412   |   |  |   | 219   |  
|Interest on borrowings  long term                           |  |                                              | 1,926  |   |                                    |   | 816    |      |  |   | 733   |   |  |   | 262   |  
|Other interest expense - debentures                          |  |                                              | 1,052  |   |                                    |   | 795    |      |  |   | 380   |   |  |   | 264   |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Total interest expense                                       |  |                                              | 14,698 |   |                                    |   | 12,001 |      |  |   | 5,238 |   |  |   | 4,145 |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Net interest income                                          |  |                                              | 11,971 |   |                                    |   | 11,744 |      |  |   | 3,881 |   |  |   | 4,131 |  
|Provision for losses on loans                                |  |                                              | 168    |   |                                    |   | 356    |      |  |   | 48    |   |  |   | 89    |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Net interest income after provision for losses on loans      |  |                                              | 11,803 |   |                                    |   | 11,388 |      |  |   | 3,833 |   |  |   | 4,042 |  
|                                                             |  |                                              |        |  
|Other Income                                                 |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Loss on repossessed assets                                   |  |                                              | (345   | ) |                                    |   | (44    | )    |  |   | (97   | ) |  |   | (124  | )
|Mortgage Banking Operations                                  |  |                                              | 2      |   |                                    |   | 42     |      |  |   | (3    | ) |  |   |      |  
|Fees on transaction accounts                                 |  |                                              | 506    |   |                                    |   | 568    |      |  |   | 172   |   |  |   | 172   |  
|Gain from sale of investments and mortgage backed securities |  |                                              | 840    |   |                                    |   | 19     |      |  |   | 851   |   |  |   | 4     |  
|Income from bank owned life insurance                        |  |                                              | 338    |   |                                    |   | 359    |      |  |   | 116   |   |  |   | 117   |  
|Other income                                                 |  |                                              | 322    |   |                                    |   | 298    |      |  |   | 109   |   |  |   | 99    |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Other income, net                                            |  |                                              | 1,663  |   |                                    |   | 1,242  |      |  |   | 1,148 |   |  |   | 268   |  
|                                                             |  |                                              |        |  
|Non-Interest Expenses                                        |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Salaries and related expense                                 |  |                                              | 6,983  |   |                                    |   | 6,583  |      |  |   | 2,310 |   |  |   | 2,288 |  
|Occupancy expense                                            |  |                                              | 1,393  |   |                                    |   | 1,385  |      |  |   | 531   |   |  |   | 418   |  
|Data processing expense                                      |  |                                              | 1,551  |   |                                    |   | 1,145  |      |  |   | 491   |   |  |   | 389   |  
|Property and equipment expense                               |  |                                              | 863    |   |                                    |   | 889    |      |  |   | 275   |   |  |   | 288   |  
|Advertising                                                  |  |                                              | 514    |   |                                    |   | 689    |      |  |   | 251   |   |  |   | 208   |  
|Telephone, postage and office supplies                       |  |                                              | 423    |   |                                    |   | 443    |      |  |   | 110   |   |  |   | 143   |  
|Other expenses                                               |  |                                              | 826    |   |                                    |   | 738    |      |  |   | 262   |   |  |   | 282   |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Total non-interest expenses                                  |  |                                              | 12,553 |   |                                    |   | 11,872 |      |  |   | 4,230 |   |  |   | 4,016 |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Income before tax provision                                  |  |                                              | 913    |   |                                    |   | 758    |      |  |   | 751   |   |  |   | 294   |  
|Income tax provision                                         |  |                                              | 198    |   |                                    |   | 138    |      |  |   | 217   |   |  |   | 61    |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Net income                                                   |  | $                                            | 715    |   |                                    | $ | 620    |      |  | $ | 534   |   |  | $ | 233   |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Per Share Data:                                              |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Basic and diluted earnings per share                         |  | $                                            | .12    |   |                                    | $ | .11    |      |  | $ | .09   |   |  | $ | .04   |  
|                                                             |  |                                              |        |   |                                    |   |        |      |  |   |       |   |  |   |       |  
|Dividends per share                                          |  | $                                            | .25    |   |                                    | $ | .25    |      |  | $ | .125  |   |  | $ | .125  |  



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)



|                                                               |  |                                    |       |   |      |   |        |  
|-------------------------------------------------------------- |  | ---------------------------------- | ----- | - | ---- | - | ------ | -
|                                                               |  | For the Nine Months EndedJune 30,  |      
|                                                               |  | 2005                               |       |   | 2004 |  
|                                                               |  | ( in thousands)                    |      
|Net Income                                                     |  | $                                  | 715   |   |      | $ | 620    |  
|Other comprehensive income, net of tax:                        |  |                                    |       |   |      |   |        |  
|Unrealized net holding losses on                               |  |                                    |       |   |      |   |        |  
|Available-for-sale portfolios, net of tax $(433), and $(2,921) |  |                                    | (696  | ) |      |   | (4,649 | )
|Reclassification adjustment for (gains) losses                 |  |                                    |       |   |      |   |        |  
|Included in net income, net of tax $3, and $(7)                |  |                                    | 5     |   |      |   | (12    | )
|                                                               |  |                                    |       |   |      |   |        |  
|Comprehensive Income (loss)                                    |  | $                                  | 24    |   |      | $ | (4,041 | )
|                                                               |  |                                    |       |   |      |   |        |  
|                                                               | 
|                                                               |  | For the Three Months EndedJune 30, |      
|                                                               |  | 2005                               |       |   | 2004 |  
|                                                               |  | ( in thousands)                    |      
|Net Income                                                     |  | $                                  | 534   |   |      | $ | 233    |  
|Other comprehensive income, net of tax:                        |  |                                    |       |   |      |   |        |  
|Unrealized net holding gains on                                |  |                                    |       |   |      |   |        |  
|Available-for-sale portfolios, net of tax $1,075, and $(3,489) |  |                                    | 1,709 |   |      |   | (5,549 | )
|Reclassification adjustment for (gains) losses                 |  |                                    |       |   |      |   |        |  
|Included in net income, net of tax $(1), and $(1)              |  |                                    | (2    | ) |      |   | (2     | )
|                                                               |  |                                    |       |   |      |   |        |  
|Comprehensive Income (loss)                                    |  | $                                  | 2,241 |   |      | $ | (5,318 | )
|                                                               |  |                                    |       |   |      |   |        |  



The accompanying notes to the
consolidated financial statements are an integral part of these statements.



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland



CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                                       |  |                               |         |   |      |   |          |  
|---------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | -------- | -
|                                                                       |  | For Nine Months EndedJune 30, |        
|                                                                       |  | 2005                          |         |   | 2004 |  
|                                                                       |  | (dollars in thousands)        |        
|Operating Activities                                                   |  |                               |         |   |      |   |          |  
|Net income                                                             |  | $                             | 715     |   |      | $ | 620      |  
|Adjustments to Reconcile Net Income to                                 |  |                               |         |   |      |   |          |  
|Net Cash Provided by Operating Activities                              |  |                               |         |   |      |   |          |  
|Gain on sale of investments and mortgage backed securities             |  |                               | (840    | ) |      |   | (19      | )
|Loans originated for sale                                              |  |                               |        |   |      |   | (3,202   | )
|Loans sold                                                             |  |                               |        |   |      |   | 3,491    |  
|Gain on sale of loans                                                  |  |                               |        |   |      |   | (42      | )
|Amortization of deferred loan fees and cost, net                       |  |                               | (105    | ) |      |   | (132     | )
|Provision for losses on loans                                          |  |                               | 168     |   |      |   | 356      |  
|Non-cash compensation under Stock-based Benefit Plan                   |  |                               | 217     |   |      |   | 247      |  
|Amortization of purchase premiums and discounts, net                   |  |                               | 123     |   |      |   | 246      |  
|Provision for depreciation                                             |  |                               | 657     |   |      |   | 707      |  
|Loss on sale of repossessed assets                                     |  |                               | 345     |   |      |   | 44       |  
|Increase in cash surrender value of bank owned life insurance          |  |                               | (338    | ) |      |   | (358     | )
|Increase in accrued interest and other assets                          |  |                               | (301    | ) |      |   | (40      | )
|Increase in other liabilities                                          |  |                               | 586     |   |      |   | 1,050    |  
|Increase in obligation under Rabbi- Trust                              |  |                               | 28      |   |      |   | 15       |  
|                                                                       |  |                               |         |   |      |   |          |  
|Net cash provided by operating activities                              |  |                               | 1,255   |   |      |   | 2,983    |  
|                                                                       |  |                              
|Cash Flows from Investing Activities                                   |  |                               |         |   |      |   |          |  
|Purchase of bank owned life insurance                                  |  |                               | (253    | ) |      |   | (11,425  | )
|Purchase of investment securities  available for sale                 |  |                               | (11,096 | ) |      |   | (76,113  | )
|Proceeds from maturities of investment securities  available for sale |  |                               | 2,000   |   |      |   | 21,130   |  
|Proceeds from sale of investment securities  available for sale       |  |                               | 15,486  |   |      |   | 10,483   |  
|Purchases of investment securities  held to maturity                  |  |                               |        |   |      |   | (2,498   | )
|Proceeds from maturities of investment securities  held to maturity   |  |                               | 500     |   |      |   | 2,500    |  
|Net increase in loans                                                  |  |                               | (47,900 | ) |      |   | (2,219   | )
|Purchase of mortgage backed securities  available for sale            |  |                               | (10,561 | ) |      |   | (52,251  | )
|Principal collected on mortgage backed securities                      |  |                               | 27,587  |   |      |   | 23,968   |  
|Proceeds from sale of mortgage backed securities - available for sale  |  |                               | 2,867   |   |      |   | 1,447    |  
|Purchase of mortgage backed securities  held to maturity              |  |                               | (5,271  | ) |      |   | (7,062   | )
|Proceeds from sales of foreclosed real estate                          |  |                               |        |   |      |   | 171      |  
|Proceeds from sales of repossessed assets                              |  |                               | 274     |   |      |   |         |  
|Investment in premises and equipment                                   |  |                               | (1,873  | ) |      |   | (380     | )
|Purchase of Federal Home Loan Bank of Atlanta Stock, net               |  |                               | (1,407  | ) |      |   | (1,600   | )
|Decrease in accounts payable Trade Date Securities                     |  |                               |        |   |      |   | (13,998  | )
|                                                                       |  |                               |         |   |      |   |          |  
|Net cash used by investing activities                                  |  |                               | (29,647 | ) |      |   | (107,847 | )



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##### Table of Contents

BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland



CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



|                                                              |  |                               |          |   |      |   |         |  
|------------------------------------------------------------- |  | ----------------------------- | -------- | - | ---- | - | ------- | -
|                                                              |  | For Nine Months EndedJune 30, |         
|                                                              |  | 2005                          |          |   | 2004 |  
|                                                              |  | (dollars in thousands)        |         
|Cash Flows from Financing Activities                          |  |                               |          |   |      |   |         |  
|Net increase in deposits                                      |  | $                             | 17,971   |   |      | $ | 30,318  |  
|Net increase in advances by borrowers for taxes and insurance |  |                               | 2,626    |   |      |   | 1,808   |  
|Proceeds from Federal Home Loan Bank of Atlanta advances      |  |                               | 240,450  |   |      |   | 152,877 |  
|Repayment of Federal Home Loan Bank of Atlanta advances       |  |                               | (227,970 | ) |      |   | (86,177 | )
|Acquisition of stock for Rabbi Trust                          |  |                               | (14      | ) |      |   |        |  
|Exercised Stock Options                                       |  |                               | 35       |   |      |   | 113     |  
|Dividends on stock                                            |  |                               | (789     | ) |      |   | (775    | )
|                                                              |  |                               |          |   |      |   |         |  
|Net cash provided by financing activities                     |  |                               | 32,309   |   |      |   | 98,164  |  
|                                                              |  |                               |          |   |      |   |         |  
|Increase (Decrease) in cash equivalents                       |  |                               | 3,917    |   |      |   | (6,700  | )
|Cash and cash equivalents at beginning of period              |  |                               | 17,815   |   |      |   | 23,208  |  
|                                                              |  |                               |          |   |      |   |         |  
|Cash and cash equivalents at end of period                    |  | $                             | 21,732   |   |      | $ | 16,508  |  
|                                                              |  |                               |          |   |      |   |         |  
|Supplemental Disclosures of Cash Flows Information:           |  |                               |          |   |      |   |         |  
|Cash paid during the period for:                              |  |                               |          |   |      |   |         |  
|                                                              |  |                              
|Interest                                                      |  | $                             | 14,506   |   |      | $ | 11,867  |  
|                                                              |  |                               |          |   |      |   |         |  
|Income taxes                                                  |  | $                             | 510      |   |      | $ | 183     |  
|                                                              |  |                               |          |   |      |   |         |  



The accompanying notes to the
consolidated financial statements are an integral part of these statements.



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 1 - |  | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | 
|         |  | BCSB Bankcorp, Inc. (the Company) owns 100% of Baltimore County Savings Bank, F.S.B. and subsidiaries (the Bank), and also invests in federal funds sold,
interest-bearing deposits in other banks and U.S. Agency bonds. The Bank owns 100% of Baltimore County Service Corporation and Ebenezer Road, Inc. The accompanying consolidated financial statements include the accounts and transactions of these
companies on a consolidated basis. All intercompany transactions have been eliminated in the consolidated financial statements. Ebenezer Road, Inc. sells insurance products. Its operations are not material to the consolidated financial
statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | 
|         |  | The Company owns 100% of the common stock of BCSB Capital Trust I and BCSB Capital Trust II and in accordance with FASB Interpretation Number 46 these entities have not been
consolidated in the accompanying consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|         | 
|Note 2 - |  | Basis for Financial Statement Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         | 
|         |  | The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form
10-Q. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, (none of which were
other than normal recurring accruals) necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. The financial statements of the Company are presented on a consolidated basis
with those of the Bank. The results for the nine months ended June 30, 2005 are not necessarily indicative of the results of operations that may be expected for the year ending September 30, 2005. The consolidated financial statements should be read
in conjunction with the consolidated financial statements and related notes which are incorporated by reference in the Companys Annual Report on Form 10-K for the year ended September 30, 2004.
|         | 
|         |  | The preparation of the financial statements in conformity with accounting principles generally accepted in the United Sates of America requires management to make estimates and judgments that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly susceptible to significant change in the near-term related to the determination of the allowance for loan losses (the Allowance), other-than-temporary impairment of
investment securities and deferred tax assets.                                                                                                                                                                                                                                                                                                                                                                                                                           
|         | 
|Note 3 - |  | Cash Flow Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|         | 
|         |  | For purposes of the statements of cash flows, cash and cash equivalents include cash and amounts due from depository institutions, investments in federal funds, and certificates of deposit
with original maturities of 90 days or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 4 - |  | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|         | 
|         |  | Basic per share amounts are based on the weighted average shares of common stock outstanding. Diluted earnings per share assume the conversion, exercise or issuance of all potential common
stock instruments such as options, unless the effect is to reduce a loss or increase earnings per share. No adjustments were made to net income (numerator) for all periods presented. The basic and diluted weighted average shares outstanding for the
nine and three months ended June 30, 2005 and 2004 is as follows:



|                                                          |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    
|--------------------------------------------------------- |  | -------------------------------------------- | --- | ------ | ----- | --------- | - | ------ |  | ------ | --- | --------- | ----- |  | - | ---
|                                                          |  | For the Nine Months Ended June 30,          
|                                                          |  | 2005                                         |     | 2004  
|                                                          |  | (dollars in thousands except per share data)
|                                                          |  | Income                                       |     | Shares |       | Per Share |   | Income |  | Shares |     | Per Share
|Basic EPS                                                 |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    
|Income available to shareholders                          |  | $                                            | 715 |        | 5,816 |           | $ | .12    |  | $      | 620 |           | 5,786 |  | $ | .11
|                                                          |  |                                              |     |        |       |          
|Diluted EPS                                               |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    
|Effect of dilutive shares                                 |  |                                              |    |        | 43    |           |   |       |  |        |    |           | 57    |  |   |   
|                                                          |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    
|Income available to shareholders plus assumed conversions |  | $                                            | 715 |        | 5,859 |           | $ | .12    |  | $      | 620 |           | 5,843 |  | $ | .11
|                                                          |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    
|                                                          | 
|                                                          |  | For the Three Months June 30,               
|                                                          |  | 2005                                         |     | 2004  
|                                                          |  | (dollars in thousands except per share data)
|                                                          |  | Income                                       |     | Shares |       | Per Share |   | Income |  | Shares |     | Per Share
|Basic EPS                                                 |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    
|Income available to shareholders                          |  | $                                            | 534 |        | 5,822 |           | $ | .09    |  | $      | 233 |           | 5,791 |  | $ | .04
|                                                          |  |                                              |     |        |       |          
|Diluted EPS                                               |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    
|Effect of dilutive shares                                 |  |                                              |    |        | 33    |           |   |       |  |        |    |           | 50    |  |   |   
|                                                          |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    
|Income available to shareholders plus assumed conversions |  | $                                            | 534 |        | 5,855 |           | $ | .09    |  | $      | 233 |           | 5,841 |  | $ | .04
|                                                          |  |                                              |     |        |       |           |   |        |  |        |     |           |       |  |   |    



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BCSB BANKCORP, INC. AND SUBSIDIARIES

Baltimore, Maryland



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



|         |  |                                                                             
|-------- |  | ----------------------------------------------------------------------------
|Note 5 - |  | Regulatory Capital                                                          
|         | 
|         |  | The following table sets forth the Banks capital position at June 30, 2005.



|                   |  |                                   |        |            |                              |   |                |                                                                  |            |  |      |                |  |            |        |  |       |  
|------------------ |  | --------------------------------- | ------ | ---------- | ---------------------------- | - | -------------- | ---------------------------------------------------------------- | ---------- |  | ---- | -------------- |  | ---------- | ------ |  | ----- | -
|                   |  | Actual                            |        |            | For CapitalAdequacy Purposes |   |                | To Be Well Capitalized Under Prompt Corrective Action Provisions |           
|                   |  | ActualAmount                      |        | % ofAssets |                              |   | RequiredAmount |                                                                  | % ofAssets |  |      | RequiredAmount |  | % ofAssets |       
|                   |  | (Unaudited)(dollars in thousands) |       
|Tangible (1)       |  | $                                 | 55,299 |            | 6.96                         | % |                | $                                                                | 11,918     |  | 1.50 | %              |  | $          | N/A    |  | N/A   | %
|Tier I capital (2) |  |                                   | 55,299 |            | 13.10                        |   |                |                                                                  | N/A        |  | N/A  |                |  |            | 25,333 |  | 6.00  |  
|Core (1)           |  |                                   | 55,299 |            | 6.96                         |   |                |                                                                  | 31,782     |  | 4.00 |                |  |            | 39,728 |  | 5.00  |  
|Risk-weighted (2)  |  |                                   | 57,495 |            | 13.62                        |   |                |                                                                  | 33,778     |  | 8.00 |                |  |            | 42,223 |  | 10.00 |  

---

|(1) | To adjust total assets
|--- | ----------------------

|(2) | To risk-weighted assets
|--- | -----------------------



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 6 - |  | Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         | 
|         |  | Stock-Based Employee Compensation- At June 30, 2005 and 2004 the Company has four stock-based employee compensation plans, which are described more fully in the 2004 Annual Report. The
Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No compensation cost is reflected in income for the granted
options as all granted options had an exercise price equal to the market value of the underlying common stock on the date of grant. Compensation cost is recorded for the value of shares of common stock granted to certain employees and directors
under the Banks Management Recognition Plan. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123,Accounting for
Stock-Based Compensation, to stock-based employee compensation.



|                                                                                                             |  |                                              |      |   |                                    |   |      |      |  |   |      |   |  |   |     |  
|------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------- | ---- | - | ---------------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | --- | -
|                                                                                                             |  | For the Nine Months EndedJune 30,            |      |   | For the Three Months EndedJune 30, |  
|                                                                                                             |  | 2005                                         |      |   | 2004                               |   |      | 2005 |  |   | 2004 |  
|                                                                                                             |  | (dollars in thousands except per share data) |     
|Net Income, as reported                                                                                      |  | $                                            | 715  |   |                                    | $ | 620  |      |  | $ | 534  |   |  | $ | 233 |  
|Add: Stock-based Compensation Included in the determination of net income as reported, net of tax            |  |                                              | 208  |   |                                    |   | 200  |      |  |   | 72   |   |  |   | 60  |  
|Deduct: Total stock-based compensation Expense determined under fair value method for all awards, net of tax |  |                                              | (232 | ) |                                    |   | (239 | )    |  |   | (80  | ) |  |   | (73 | )
|                                                                                                             |  |                                              |      |   |                                    |   |      |      |  |   |      |   |  |   |     |  
|Pro forma net income                                                                                         |  | $                                            | 691  |   |                                    | $ | 581  |      |  | $ | 526  |   |  | $ | 220 |  
|                                                                                                             |  |                                              |      |   |                                    |   |      |      |  |   |      |   |  |   |     |  
|Earnings per share:                                                                                          |  |                                              |      |   |                                    |   |      |      |  |   |      |   |  |   |     |  
|Basic-as reported                                                                                            |  | $                                            | .12  |   |                                    | $ | .11  |      |  | $ | .09  |   |  | $ | .04 |  
|                                                                                                             |  |                                              |      |   |                                    |   |      |      |  |   |      |   |  |   |     |  
|Basic-pro forma                                                                                              |  | $                                            | .12  |   |                                    | $ | .10  |      |  | $ | .09  |   |  | $ | .04 |  
|                                                                                                             |  |                                              |      |   |                                    |   |      |      |  |   |      |   |  |   |     |  
|Diluted-as reported                                                                                          |  | $                                            | .12  |   |                                    | $ | .11  |      |  | $ | .09  |   |  | $ | .04 |  
|                                                                                                             |  |                                              |      |   |                                    |   |      |      |  |   |      |   |  |   |     |  
|Diluted-pro forma                                                                                            |  | $                                            | .12  |   |                                    | $ | .10  |      |  | $ | .09  |   |  | $ | .04 |  
|                                                                                                             |  |                                              |      |   |                                    |   |      |      |  |   |      |   |  |   |     |  



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Note 7 - Recent Accounting Pronouncements



In November 2004, the Emerging Issues Task Force (EITF) of the FASB issued EITF Abstract 03-01, The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (EITF) 03-1) effective for fiscal years ending after March 15, 2004. This abstract provides guidelines on the meaning of
other-than-temporary impairment and its application to investments. Declines in fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the
intent and ability of the Company to retain its investment in the issue for a period of time sufficient to allow for any anticipated recovery in fair value.



In December 2004, the Financial Accounting Standards Board issued Statement No. 123(R) (SFAS 123(R)), Share-Based Payment. This
statement replaces Statement of Financial Accounting Standards No. 123(SFAS 123), Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123(R)
will require compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or
liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. This statement is effective for the Company beginning the first interim or annual reporting period that
begins after October 1, 2005.



Note 8- Guarantees



The Company does not issue any guarantees that would require liability
recognition or disclosure, other than its standby letters of credit. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, all letters of credit,
when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loans facilities to customers. The Company, generally holds collateral and/or
personal guarantees supporting these commitments. The Company has $672,000 of standby letters of credit as of June 30, 2005. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would
be sufficient to cover the potential amount of future payment required under the corresponding guarantees. The current amount of the liability as of June 30, 2005 for guarantees under standby letters of credit issued is not considered to be
material.



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



General



BCSB Bankcorp is a growing company headquartered in Baltimore, Maryland. The Company provides general consumer and commercial banking services in the greater Baltimore Metropolitan area. The Company opened two new
branches during the previous quarter, one in the Honeygo area of Baltimore, Maryland and another in Sparks, Maryland. The Company has also signed a contract to open a branch in the Owings Mills area. The anticipated opening is the second half of
calendar 2005.



The Companys net income is dependent
primarily on its net interest income, which is the difference between interest income earned on its interest earning assets and interest paid on interest-bearing liabilities. Net interest income is determined by (i) the difference between yields
earned on interest-earning assets and rates paid on interest-bearing liabilities (interest rate spread) and (ii) the relative amounts of interest-earning assets and interest-bearing liabilities. The Companys interest rate spread is
affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. To a lesser extent, the Companys net income also is affected by the level of other income, which primarily consists of fees
and charges, and levels of non-interest expenses such as salaries and related expenses.



The operations of the Company are significantly affected by prevailing economic conditions, competition and the monetary, fiscal and regulatory policies of governmental agencies. Lending activities are influenced by
the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flows and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments,
account maturities and the levels of personal income and savings in the Companys market area.



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##### Table of Contents

Critical Accounting Policies



Managements discussion and analysis of the Companys financial condition is based on the consolidated financial
statements, which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to the allowance for loan losses.



Management believes the allowance for loan losses is a critical accounting
policy that requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements. The allowance for loan losses is based on managements evaluation of the level of the allowance required in
relation to the estimated loss exposure in the loan portfolio. Management believes the allowance for loan losses is a significant estimated loss and therefore regularly evaluates it for adequacy by taking into consideration factors such as prior
loan loss experience, the character and size of the loan portfolio, business and economic conditions and managements estimation of losses. The use of different estimates or assumptions could produce different provisions for loan losses.



The Company adopted the disclosure only provisions of FASB
Statement No. 123, see note 6 to the consolidated financial statements. The Company does not expect to expense the fair market value of stock options until required for reporting periods beginning after September 30, 2005.



Forward-Looking Statements



When used in this Annual Report, the words or phrases will likely
result, are expected to, will continue, is anticipated, estimate, project or similar expressions are intended to identify forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Companys market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Companys market area, competition and information provided by third-party vendors that could cause actual results to differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the
Companys financial performance and could cause the Companys actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.



The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.



Comparison of Financial Condition at June 30, 2005 and September 30, 2004



During the nine months ended June 30, 2005, the Companys assets
increased by $33.0 million, or 4.3% from $773.6 million at September 30, 2004 to $806.6 million at June 30, 2005. The Companys interest bearing deposits in other banks decreased $1.1 million, or 42.6% from $2.6 million at September 30, 2004 to
$1.5 million at June 30, 2005. The Companys investment portfolio available for sale decreased $6.7 million or 4.2%, from $158.9 million at September 30, 2004 to $152.3 million at June 30, 2005. The Companys investment portfolio held to
maturity decreased $500,000, or 20.1% from $2.5 million at September 30, 2004 to $2.0 million at and June 30, 2005. Net loans receivable, increased $47.2 million, or 12.2%, from $386.1 million at September 30, 2004 to $433.3 million at June 30,
2005. The loan growth was primarily due to the increased number of new residential loans and an increase in the volume of new commercial loans, many with adjustable rates. The Companys mortgage-backed securities available for sale decreased by
$16.3 million, or 11.3%, from $144.3 million at September 30, 2004 to $127.9 million at June 30, 2005. The Companys mortgage-backed securities held to maturity increased $1.4 million, or 5.4% from $26.6 million at September 30, 2004 to $28.0
million at June 30, 2005. The cash surrender value on the Bank Owned Life Insurance increased $592,000, or 5.0% from $11.9 million at September 30, 2004 to $12.5 million at June 30, 2005. All of the preceding was accomplished in an



12



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##### Table of Contents

effort to reduce interest rate risk in the balance sheet. In anticipating a rising rate environment the Company is attempting to structure the balance sheet
to reduce exposure to long term assets which would not re-price quickly when interest rates rise. In addition the Company is increasing long term funding in anticipation of rising interest rates.



Deposits increased by $17.9 million, or 3.1%, from $580.6 million at
September 30, 2004 to $598.5 million at June 30, 2005. The increase in deposits was achieved through normal marketing efforts. The growth in deposits helped to fund loan demand. The Company uses both short-term and long-term borrowings to fund
growth of earnings assets in excess of deposit growth. Short-term advances from the Federal Home Loan Bank of Atlanta increased by $2.3 million, or 5.3% from $43.0 million at September 30, 2004 to $45.3 million at June 30, 2005. Long-term advances
from the Federal Home Loan Bank of Atlanta increased by $10.1 million, or 12.9% from $77.9 million at September 30, 2004 to $88.0 million at June 30, 2005. In anticipation of a rising rate environment, long term advances were used to help mitigate
interest rate risk.



Stockholders equity decreased by
$500,000, or 1.1% from $44.1 million at September 30, 2004 to $43.6 million at June 30, 2005, which was primarily attributable to the increase in accumulated other comprehensive loss of $692,000 from, a negative $1.8 million at September 30, 2004 to
a negative $2.4 million at June 30, 2005. These unrealized losses are considered temporary as they reflect market values on June 30, 2005 and are subject to change daily as interest rates fluctuate. This decrease is due to the effect rising interest
rates have on the available for sale securities recorded at fair value. This decline in value has no impact on the Banks regulatory capital.



13



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##### Table of Contents

Comparison of Operating Results for the Nine Months Ended June 30, 2005 and 2004



Net Income. Net income increased by $95,000, or 15.3%, from $620,000
for the nine months ended June 30, 2004 to $715,000 for the nine months ended June 30, 2005. The increase in net income was primarily attributable to an increase in net interest income of $227,000 and an increase in other income of $421,000.
Provision for loan losses also decreased by $188,000. This was partially offset by an increase in non-interest expenses of $681,000.



Net Interest Income. Net interest income was $12.0 million for the nine months ended June 30, 2005, compared to $11.7 million for the nine months
ended June 30, 2004, representing an increase of $227,000, or 1.9%. The increase was primarily due to the increase in the average balance of interest-earning assets. The average balance of interest-earning assets increased $94.1 million, or 14.7%
from $638.2 million for the nine months ended June 30, 2004 to $732.3 million at June 30, 2005. The increase in the average balance of interest earning-assets more than offset the decrease in the average rate on interest-earning assets of 10 basis
points from, 4.96% for the nine months ended June 30, 2004 to 4.86% for the nine months ended June 30, 2005. Despite recent increases in interest rates, higher yielding assets within the investment and loan portfolios continue to re-price faster and
are being replaced with lower yielding assets which resulted in a decrease in the interest rate spread of 29 basis points from, 2.47% for the nine months ended June 30, 2004 to 2.18% for the nine months ended June 30, 2005. The Company has elected
to sacrifice some interest rate spread in the near term in order to reduce interest rate risk and to position itself to respond to changes in market rates. The Companys ratio of average interest-earning assets to average interest-bearing
liabilities increased from 99.27% for the nine months ended June 30, 2004 to 100.09% for the nine months ended June 30, 2005. The Companys spread has decreased because the cost of liabilities has increased, whereas the interest rates for
assets have not changed as much due to their longer term nature. In an effort to avoid long term fixed rate assets, the Companys investment strategy is to emphasize short-term loans. When the Company purchases mortgage-backed securities or
investments, it purchases primarily adjustable, callable or step-ups.



Interest Income. Interest income increased by $2.9 million, or 12.3% from $23.7 million for the nine months ended June 30, 2004 to $26.7 million for the nine months ended June 30, 2005. Interest and fees on loans increased by $1.1
million, or 6.8% from $16.5 million for the nine months ended June 30, 2004 to $17.6 million for the nine months ended June 30, 2005. This was primarily due to an increase in the average balance of loans receivable of $41.0 million, or 11.4% from
$359.6 million at June 30, 2004 to $400.7 million at June 30, 2005. The increase in the average balance of loans offset the decrease in the average yield on loans of 26 basis points from 6.13% for the nine months ended June 30, 2004 to 5.87% for the
nine months ended June 30, 2005. The decrease in the average yield was attributed to the prevailing market rates in the economy. Interest on mortgage-backed securities increased by $841,000 or 21.2% from $4.0 million for the nine months ended June
30, 2004 to $4.8 million for the nine months ended June 30, 2005. This increase was primarily due to the increase in the average balance of mortgage-backed securities from $135.0 million at June 30, 2004 to $166.3 million at June 30, 2005. Interest
and dividends on investment securities increased by $997,000 or 31.5% from $3.2 million for the nine months ended June 30, 2004 to $4.1 million for the nine months ended June 30, 2005. This was primarily due to an increase in the average balance of
investments of $27.3 million from, $135.1 million at June 30, 2004 to $162.3 million at June 30, 2005, and an increase in the average yield of 30 basis points from, 3.12 % for the nine months ended June 30, 2004 to 3.42% for the nine months ended
June 30, 2005.



Interest Expense. Interest expense,
which consists of interest on deposits, interest on borrowed money and other interest expense increased from $12.0 million for the nine months ended June 30, 2004 to $14.7 million for the nine months ended June 30, 2005 an increase of $2.7 million
or 22.5%. Interest on deposits increased $679,000 due to an increase in the average volume of deposits of $19.2 million, or 3.4% from $567.8 million at June 30, 2004 to $587.0 million at June 30, 2005. The average yield on deposits increased 8 basis
points from 2.37% at June 30, 2004 to 2.45% at June 30, 2005. The Company was able to increase its deposits through normal marketing efforts. Interest on short-term borrowings increased by $651,000 for the nine months ended June 30, 2005, and
interest on long-term borrowings increased by $1.1 million for the nine months ended June 30, 2005. This increase was primarily due to an increase of $15.7 million in the average balance of short term advances from the Federal Home Loan Bank of
Atlanta, from $33.0 million at June 30, 2004 to $48.7 million at June 30, 2005. The average balance of long-term advances (advances with maturities greater than one year) from the FHLB of Atlanta also increased by $54.8 million from, $18.0 million
at June 30, 2004 to $72.8 million at June 30, 2005. The Company has $45.3 million in short term advances and $88.0 million in long term advances with the Federal Home Loan Bank of Atlanta. Proceeds of these advances were used to fund loans and
purchase mortgage backed securities and investments that conform to the Banks strategy. Mitigation of interest rate risk and the ability to have funds available for re-pricing in a rising rate environment are important elements of the
Banks investment strategy. Also contributing to interest expense was interest on the Junior Subordinated Debentures which was $1.1 million for the nine month period ending June 30, 2005, compared to $795,000 for the nine month period
ending June 30, 2004.



14



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##### Table of Contents

Average Balance Sheet. The following table sets forth certain information relating to the
Companys average balance sheet and reflects the average yield on assets and cost of liabilities for the periods indicated and the yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average
daily balance of assets or liabilities, respectively, for the nine month periods ended June 30, 2005 and 2004. Total average assets are computed using month-end balances.



The table also presents information for the periods indicated with respect to the differences between the average yield
earned on interest-earning assets and average rate paid on interest-bearing liabilities, or interest rate spread, which banks have traditionally used as an indicator of profitability. Another indicator of net interest income is net
interest margin, which is its net interest income divided by the average balance of interest-earning assets.



|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|------------------------------------------------------------------ |  | ---------------------------------- | ------- | -------- | ---- | ---------------------- |  | ------ | -------------- |  | -------- | ------- | ----------- | - | ------ |  | ----- | -
|                                                                   |  | For the Nine Months Ended June 30, |        
|                                                                   |  | 2005                               |         |          | 2004 |                       
|                                                                   |  | AverageBalance                     |         | Interest |      | AverageRate            |  |        | AverageBalance |  | Interest |         | AverageRate |  
|                                                                   |  |                                    |         |          |      | (Dollars in thousands) |  |        |                |  |         
|Interest-earning assets:                                           |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Loans receivable, net                                              |  | $                                  | 400,693 |          | $    | 17,646                 |  | 5.87   | %              |  | $        | 359,648 |             | $ | 16,529 |  | 6.13  | %
|Mortgage-backed securities                                         |  |                                    | 166,315 |          |      | 4,813                  |  | 3.86   |                |  |          | 135,042 |             |   | 3,972  |  | 3.92  |  
|Investment securities                                              |  |                                    | 162,335 |          |      | 4,159                  |  | 3.42   |                |  |          | 135,071 |             |   | 3,162  |  | 3.12  |  
|Other interest earning assets                                      |  |                                    | 2,914   |          |      | 51                     |  | 2.33   |                |  |          | 8,415   |             |   | 82     |  | 1.32  |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Total Interest-earning assets                                      |  |                                    | 732,257 |          |      | 26,669                 |  | 4.86   |                |  |          | 638,176 |             |   | 23,745 |  | 4.96  |  
|Bank Owned Life Insurance                                          |  |                                    | 12,136  |          |      |                        |  |        |                |  |          | 11,784  |             |   |        |  |       |  
|Noninterest-earning assets                                         |  |                                    | 40,488  |          |      |                        |  |        |                |  |          | 48,764  |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Total assets                                                       |  | $                                  | 784,881 |          |      |                        |  |        |                |  | $        | 698,724 |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Interest-bearing liabilities:                                      |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Deposits                                                           |  | $                                  | 587,016 |          | $    | 10,778                 |  | 2.45   | %              |  | $        | 567,842 |             | $ | 10,099 |  | 2.37  | %
|Short-term FHLB Advances                                           |  |                                    | 48,653  |          |      | 942                    |  | 2.69   |                |  |          | 32,980  |             |   | 291    |  | 1.18  |  
|Long-term FHLB Advances                                            |  |                                    | 72,853  |          |      | 1,926                  |  | 3.52   |                |  |          | 18,000  |             |   | 816    |  | 6.04  |  
|Junior Subordinated Debentures                                     |  |                                    | 23,197  |          |      | 1,052                  |  | 6.05   |                |  |          | 23,197  |             |   | 795    |  | 4.57  |  
|Other liabilities                                                  |  |                                    | 1,896   |          |      | 0                      |  | .00    |                |  |          | 848     |             |   | 0      |  | .00   |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Total interest-bearing liabilities                                 |  |                                    | 731,615 |          |      | 14,698                 |  | 2.68   |                |  |          | 642,867 |             |   | 12,001 |  | 2.49  |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Noninterest-bearing liabilities                                    |  |                                    | 9,856   |          |      |                        |  |        |                |  |          | 12,311  |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Total liabilities                                                  |  |                                    | 741,471 |          |      |                        |  |        |                |  |          | 655,178 |             |   |        |  |       |  
|Stockholders Equity                                               |  |                                    | 43,410  |          |      |                        |  |        |                |  |          | 43,546  |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Total liabilities and stockholders equity                         |  | $                                  | 784,881 |          |      |                        |  |        |                |  | $        | 698,724 |             |   |        |  |       |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Net interest income                                                |  |                                    |         |          | $    | 11,971                 |  |        |                |  |          |         |             | $ | 11,744 |  |       |  
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Interest rate spread                                               |  |                                    |         |          |      |                        |  | 2.18   | %              |  |          |         |             |   |        |  | 2.47  | %
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Net interest margin                                                |  |                                    |         |          |      |                        |  | 2.18   | %              |  |          |         |             |   |        |  | 2.45  | %
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  
|Ratio average interest earning assets/interest bearing liabilities |  |                                    |         |          |      |                        |  | 100.09 | %              |  |          |         |             |   |        |  | 99.27 | %
|                                                                   |  |                                    |         |          |      |                        |  |        |                |  |          |         |             |   |        |  |       |  



15



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##### Table of Contents

Rate/Volume Analysis.The table below sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by
old rate); (ii) changes in rates (change in rate multiplied by old volume); and (iii) changes in rate/volume (changes in rate multiplied by the changes in volume).



|                                     |  |                                |       |   |      |   |        |   |  |             |  |   |        |   |  |   |       |  
|------------------------------------ |  | ------------------------------ | ----- | - | ---- | - | ------ | - |  | ----------- |  | - | ------ | - |  | - | ----- | -
|                                     |  | For Nine Months Ended June 30, |      
|                                     |  | 2005                           |       |   | vs.  |   | 2004   |  
|                                     |  |                                |      
|                                     |  | Increase (Decrease) Due to     |      
|                                     |  | Volume                         |       |   | Rate |   |        |   |  | Rate/Volume |  |   | Total  |  
|                                     |  | (In Thousands)                 |      
|Interest income:                     |  |                                |       |   |      |   |        |   |  |             |  |   |        |   |  |   |       |  
|Loans receivable, net                |  | $                              | 1,918 |   |      | $ | (719   | ) |  |             |  | $ | (82    | ) |  | $ | 1,117 |  
|Mortgage-backed securities           |  |                                | 925   |   |      |   | (68    | ) |  |             |  |   | (16    | ) |  |   | 841   |  
|Investment securities and FHLB Stock |  |                                | 640   |   |      |   | 297    |   |  |             |  |   | 60     |   |  |   | 997   |  
|Other interest-earning assets        |  |                                | (54   | ) |      |   | 66     |   |  |             |  |   | (43    | ) |  |   | (31   | )
|                                     |  |                                |       |   |      |   |        |   |  |             |  |   |        |   |  |   |       |  
|Total interest-earning assets        |  |                                | 3,429 |   |      |   | (424   | ) |  |             |  |   | (81    | ) |  |   | 2,924 |  
|Interest expense:                    |  |                                |       |   |      |   |        |   |  |             |  |   |        |   |  |   |       |  
|Deposits                             |  |                                | 341   |   |      |   | 327    |   |  |             |  |   | 11     |   |  |   | 679   |  
|Short-term FHLB advances             |  |                                | 121   |   |      |   | 375    |   |  |             |  |   | 155    |   |  |   | 651   |  
|Long-term FHLB advances              |  |                                | 2,487 |   |      |   | (340   | ) |  |             |  |   | (1,037 | ) |  |   | 1,110 |  
|Junior Subordinated Debentures       |  |                                | 0     |   |      |   | 257    |   |  |             |  |   | 0      |   |  |   | 257   |  
|Other liabilities                    |  |                                | 0     |   |      |   | 0      |   |  |             |  |   | 0      |   |  |   | 0     |  
|                                     |  |                                |       |   |      |   |        |   |  |             |  |   |        |   |  |   |       |  
|Total interest-bearing liabilities   |  |                                | 2,949 |   |      |   | 619    |   |  |             |  |   | (871   | ) |  |   | 2,697 |  
|                                     |  |                                |       |   |      |   |        |   |  |             |  |   |        |   |  |   |       |  
|Change in net interest income        |  | $                              | 480   |   |      | $ | (1,043 | ) |  |             |  | $ | 790    |   |  | $ | 227   |  
|                                     |  |                                |       |   |      |   |        |   |  |             |  |   |        |   |  |   |       |  



Provision for Loan
Losses. The Company charges provisions for loan losses to earnings to maintain the total allowance for loan losses at a level management considers adequate to provide for losses inherent in the loan portfolio as of the balance sheet date. In
determining the provision, management considers a number of factors such as existing loan levels, prior loss experience, current economic conditions and the probability of these conditions affecting existing loans. The Company established provisions
for losses on loans of $168,000 for the nine months ended June 30, 2005, as compared to $356,000 for the nine months ended June 30, 2004, representing a decrease of $188,000. Loan chargeoffs for the nine months ended June 30, 2005 were $284,000 as
compared to $907,000 for the nine months ended June 30, 2004 a decrease of $623,000. The decrease in loan chargeoffs was due to a decrease in actual losses in the Banks consumer loan portfolio. Loan recoveries were $264,000 for the nine months
ended June 30, 2005 compared to $241,000 for the nine months ended June 30, 2004. Non-performing loans at June 30, 2005 were $1.1 million as compared to $1.1 million at June 30, 2004. Non-performing loans at September 30, 2004 were $872,000. The
total loss allowance allocated to loans is $2.7 million. In establishing such provisions, management considered an analysis of the risk inherent in the loan portfolio. For additional information see Asset Quality.



Other Income.Other income increased by $421,000, or 34.1% from
$1.2 million for the nine months ended June 30, 2004 to $1.7 million for the nine months ended June 30, 2005. The increase in other income for the nine months ended June 30 2004 was attributable to an increase in the gain on sale of investments of
$821,000, from $19,000 for the nine months ended June 30, 2004 to $840,000 for the nine months ended June 30, 2005. A portion of this increase is attributed to a one time gain associated with Harland Financial Solutions, Inc. cash acquisition of
outstanding shares of the common stock of Intrieve Incorporated, which included shares owned by Baltimore County Savings Bank, F.S.B, the Companys wholly owned subsidiary. The Company could realize additional gains of up to $60,000 after tax
during the year following the closing of the acquisition if certain additional criteria specified in the acquisition agreement are satisfied. This increase was partially offset by an increase in the loss on repossessed assets of $301,000 from
$44,000 at June 30, 2004 to $345,000 at June 30, 2005. Fees on transaction accounts also decreased $62,000 from $568,000 for the nine months ended June 30, 2004 to $506,000 for the nine months ended June 30, 2005, as the Company eliminated or
reduced fees on certain products in an effort to compete in the market and increase our transaction accounts which are our



16



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##### Table of Contents

lowest cost source of funding. Income from Bank Owned Life Insurance (BOLI ) decreased $21,000 for the nine months ended June 30, 2005 from $359,000 for the
nine months ended June 30, 2004, to $338,000 for the nine months ended June 30, 2005. This decrease was due to an adjustment in the rate of dividends paid on the BOLI investment.



Non-interest Expenses. Total non-interest expenses increased by $681,000, or 5.74% from $11.9 million for the nine
months ended June 30, 2004 to $12.5 million for the nine months ended June 30, 2005. The Company experienced increases of $400,000 in salaries and related expenses, from $6.6 million for the nine months ended June 30, 2004 to $7.0 million for the
nine months ended June 30, 2005. Salaries and related expenses increased as the Company hired new personnel to staff the new offices. Data processing expense increased $406,000, from $1.1 million for the nine months ended June 30, 2004 to $1.6
million for the nine months ended June 30, 2005. The increase in data processing expenses was primarily due to the Banks decision not to renew its contracts with Intrieve and to convert its data processing system to Fiserv. The Bank had
several contracts with Intrieve, all with different ending dates. To end all contracts at the same time an early termination penalty of $273,000 was recognized. This was partially offset by a credit of $150,000 from Fiserv. Other expenses increased
by $88,000, or 11.9% from $738,000 for the nine months ended June 30, 2004 to $826,000 for the nine months ended June 30, 2005. Advertising expense decreased $175,000, or 25.4% from $689,000 for the nine months ended June 30, 2004 to $514,000 for
the nine months ended June 30, 2005. During the next quarter, non-interest expenses will likely increase due to the opening of a new branch. However, the branch is strategically placed to eventually increase the overall performance of the Company.



Income Taxes. The Companys income tax expense was
$198,000 and $138,000 for the nine months ended June 30, 2005 and 2004, respectively. The Companys effective tax rates were 21.7% and 18.2% for the nine months ended June 30, 2005 and 2004, respectively. The Companys effective tax rate
increased for the nine months ended June 30, 2005 as compared to the same period in the prior year as the Companys taxable income increased relative to its tax-exempt income.



Comparison of Operating Results for the Three Months Ended June 30, 2005 and 2004



Net Income. Net income increased by $301,000, or 129.2%, from
$233,000 for the three months ended June 30, 2004 to $534,000 for the three months ended June 30, 2005. The increase in net income was primarily attributable to an increase in the gain on sale of investment of $847,000. This was partially offset by
a decrease in net interest income of $250,000 or 6.1% and an increase in non-interest expenses of $214,000, or 5.3%.



Net Interest Income. Net interest income was $3.9 million for the three months ended June 30, 2005, compared to $4.1 million for the three months
ended June 30, 2004, representing a decrease of $250,000, or 6.1%. The decrease was primarily due to the increase in the average balance of interest-bearing liabilities. The average balance of interest-bearing liabilities increased $55.4 million, or
8.0% from $692.5 million for the three months ended June 30, 2004 to $747.9 million at June 30, 2005. The average rate on interest bearing liabilities increased by 41 basis points from 2.39% for the three months ended June 30, 2004 to 2.80% for the
three months ended June 30, 2005. Despite recent increases in interest rates, higher yielding assets within the investment and loan portfolios continue to re-price faster and are being replaced with low yielding assets which resulted in a decrease
in the interest rate spread of 28 basis points from, 2.39% for the three months ended June 30, 2004 to 2.11% for the three months ended June 30, 2005. The Companys ratio of average interest-earning assets to average interest-bearing
liabilities decreased from 100.07% for the three months ended June 30, 2004 to 98.28% for the three months ended June 30, 2005. The Company has elected to sacrifice some interest rate spread in the short term in order to reduce interest rate risk
and position itself to respond to changes in market rates. In an effort to avoid long term fixed rate assets in the current interest rate environment, the Companys investment strategy was to purchase securities that were short term in nature
or had step-up provisions. Likewise, investments in mortgage-backed securities were primarily in adjustable loan products or maturities of ten years or less. Short term loans were also emphasized.



Interest Income. Interest income increased by $843,000, or 10.2% from
$8.3 million for the three months ended June 30, 2004 to $9.1 million for the three months ended June 30, 2005. Interest and fees on loans increased by $640,000, or 11.7% from $5.5 million for the three months ended June 30, 2004 to $6.1 million for
the three months ended June 30, 2005. This was primarily due to an increase in the average balance of loans receivable of $55.1 million, or 15.2% from $361.3 million at June 30, 2004 to $416.4 million at June 30, 2005. The increase in the average
balance of loans offset the decrease in the average yield on loans of 18 basis points from 6.05% for the three months ended June 30, 2004 to 5.87% for the three months ended June 30, 2005. The decrease in the average yield was attributed to higher



17



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##### Table of Contents

yielding mortgage loans refinancing at lower rates. Interest on mortgage-backed securities increased by $73,000 or 4.9% from $1.5 million for the three
months ended June 30, 2004 to $1.6 million for the three months ended June 30, 2005. This increase was primarily due to the increase in the average rate on mortgage-backed securities of 20 basis points from 3.70% for the three months ended June 30,
2004 to 3.90% for the three months ended June 30, 2005. This more than offset the decrease in the average balance of $642,000 or .4% from $162.3 million at June 30, 2004 to $161.6 million at June 30, 2005. Interest and dividends on investment
securities increased by $133,000 or 10.3% from $1.3 million for the three months ended June 30, 2004 to $1.4 million for the three months ended June 30, 2005. This was primarily due to an increase in the average yield on investments of 38 basis
points from 3.12% for the three months ended June 30, 2004 to 3.50% for the three months ended June 30, 2005.



Interest Expense. Interest expense, which consists of interest on deposits, interest on borrowed money and other interest expense increased from
$4.1 million for the three months ended June 30, 2004 to $5.2 million for the three months ended June 30, 2005 an increase of $1.1 million or 26.4%. Interest on deposits increased $313,000 due to an increase in the average volume of deposits of $7.5
million, or 1.3% from $582.7 million at June 30, 2004 to $590.2 million at June 30, 2005. The average yield on deposits increased 19 basis points from 2.33% at June 30, 2004 to 2.52% at June 30, 2005. The Company was able to increase its deposits
through normal marketing efforts. Interest on short-term borrowings increased by $193,000 for the three months ended June 30, 2005, and interest on long-term borrowings increased by $471,000 for the three months ended June 30, 2005. This increase
was primarily due to an increase of $68.7 million in the average balance of long-term advances from the Federal Home Loan Bank of Atlanta, from $18.0 million at June 30, 2004 to $86.7 million at June 30, 2005. The Banks strategy in this rising
rate environment was to increase long term advances with fixed rates in an effort to mitigate interest rate risk. Therefore, there was a decrease in short term advances from the FHLB of $22.0 million from, $67.0 million at June 30, 2004
to $45.1 million at June 30, 2005. The funds from these advances were used to purchase short term investment securities, mortgage backed securities, and to fund loans in an effort to mitigate interest rate risk and have funds available to reinvest
as interest rates rise. Also contributing to interest expense was interest on the Junior Subordinated Debentures which was $380,000 for the three month period ending June 30, 2005, compared to $264,000 for the three month period ending June 30,
2004.



18



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##### Table of Contents

Average Balance Sheet. The following table sets forth certain information relating to the
Companys average balance sheet and reflects the average yield on assets and cost of liabilities for the periods indicated and the yields earned and rates paid. Such yields and costs are derived by dividing income or expense by the average
daily balance of assets or liabilities, respectively, for the three month periods ended June 30, 2005 and 2004. Total average assets are computed using month-end balances.



The table also presents information for the periods indicated with respect to the differences between the average yield
earned on interest-earning assets and average rate paid on interest-bearing liabilities, or interest rate spread, which banks have traditionally used as an indicator of profitability. Another indicator of net interest income is net
interest margin, which is its net interest income divided by the average balance of interest-earning assets.



|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|------------------------------------------------------------------ |  | ----------------------------------- | ------- | -------- | ---- | ----------- |  | ----- | -------------- |  | -------- | ------- | ----------- | - | ----- |  | ------ | -
|                                                                   |  | For the Three Months Ended June 30, |        
|                                                                   |  | 2005                                |         |          | 2004 |            
|                                                                   |  | AverageBalance                      |         | Interest |      | AverageRate |  |       | AverageBalance |  | Interest |         | AverageRate |  
|                                                                   |  | (Dollars in thousands)              |        
|Interest-earning assets:                                           |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Loans receivable, net                                              |  | $                                   | 416,365 |          | $    | 6,106       |  | 5.87  | %              |  | $        | 361,278 |             | $ | 5,466 |  | 6.05   | %
|Mortgage-backed securities                                         |  |                                     | 161,611 |          |      | 1,574       |  | 3.90  |                |  |          | 162,253 |             |   | 1,501 |  | 3.70   |  
|Investment securities                                              |  |                                     | 162,729 |          |      | 1,423       |  | 3.50  |                |  |          | 165,217 |             |   | 1,290 |  | 3.12   |  
|Other interest earning assets                                      |  |                                     | 1,849   |          |      | 16          |  | 3.46  |                |  |          | 4,286   |             |   | 19    |  | 1.77   |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Total Interest-earning assets                                      |  |                                     | 742,554 |          |      | 9,119       |  | 4.91  |                |  |          | 693,034 |             |   | 8,276 |  | 4.78   |  
|Bank Owned Life Insurance                                          |  |                                     | 12,504  |          |      |             |  |       |                |  |          | 11,784  |             |   |       |  |        |  
|Noninterest-earning assets                                         |  |                                     | 44,400  |          |      |             |  |       |                |  |          | 46,268  |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Total assets                                                       |  | $                                   | 799,458 |          |      |             |  |       |                |  | $        | 751,086 |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Interest-bearing liabilities:                                      |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Deposits                                                           |  | $                                   | 590,234 |          | $    | 3,713       |  | 2.52  | %              |  | $        | 582,722 |             | $ | 3,400 |  | 2.33   | %
|Short-term FHLB Advances                                           |  |                                     | 45,087  |          |      | 412         |  | 3.65  |                |  |          | 67,083  |             |   | 219   |  | 1.31   |  
|Long-term FHLB Advances                                            |  |                                     | 86,667  |          |      | 733         |  | 3.38  |                |  |          | 18,000  |             |   | 262   |  | 5.82   |  
|Junior Subordinated Debentures                                     |  |                                     | 23,197  |          |      | 380         |  | 6.55  |                |  |          | 23,197  |             |   | 264   |  | 4.55   |  
|Other liabilities                                                  |  |                                     | 2,752   |          |      | 0           |  | .00   |                |  |          | 1,541   |             |   | 0     |  | .00    |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Total interest-bearing liabilities                                 |  |                                     | 747,937 |          |      | 5,238       |  | 2.80  |                |  |          | 692,543 |             |   | 4,145 |  | 2.39   |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Noninterest-bearing liabilities                                    |  |                                     | 8,055   |          |      |             |  |       |                |  |          | 17,391  |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Total liabilities                                                  |  |                                     | 755,992 |          |      |             |  |       |                |  |          | 709,934 |             |   |       |  |        |  
|Stockholders Equity                                               |  |                                     | 43,466  |          |      |             |  |       |                |  |          | 41,152  |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Total liabilities and stockholders equity                         |  | $                                   | 799,458 |          |      |             |  |       |                |  | $        | 751,086 |             |   |       |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Net interest income                                                |  |                                     |         |          | $    | 3,881       |  |       |                |  |          |         |             | $ | 4,131 |  |        |  
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Interest rate spread                                               |  |                                     |         |          |      |             |  | 2.11  | %              |  |          |         |             |   |       |  | 2.39   | %
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Net interest margin                                                |  |                                     |         |          |      |             |  | 2.09  | %              |  |          |         |             |   |       |  | 2.38   | %
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  
|Ratio average interest earning assets/interest bearing liabilities |  |                                     |         |          |      |             |  | 98.28 | %              |  |          |         |             |   |       |  | 100.07 | %
|                                                                   |  |                                     |         |          |      |             |  |       |                |  |          |         |             |   |       |  |        |  



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##### Table of Contents

Rate/Volume Analysis.The table below sets forth certain information regarding changes in interest
income and interest expense of the Bank for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by
old rate); (ii) changes in rates (change in rate multiplied by old volume); and (iii) changes in rate/volume (changes in rate multiplied by the changes in volume).



|                                   |  |                                 |       |   |      |   |      |   |  |             |  |   |       |   |  |   |       |  
|---------------------------------- |  | ------------------------------- | ----- | - | ---- | - | ---- | - |  | ----------- |  | - | ----- | - |  | - | ----- | -
|                                   |  | For Three Months Ended June 30, |      
|                                   |  | 2005                            |       |   | vs.  |   | 2004 |  
|                                   |  |                                 |      
|                                   |  | Increase (Decrease) Due to      |      
|                                   |  | Volume                          |       |   | Rate |   |      |   |  | Rate/Volume |  |   | Total |  
|                                   |  | (In Thousands)                  |      
|Interest income:                   |  |                                 |       |   |      |   |      |   |  |             |  |   |       |   |  |   |       |  
|Loans receivable, net              |  | $                               | 807   |   |      | $ | (145 | ) |  |             |  | $ | (22   | ) |  | $ | 640   |  
|Mortgage-backed securities         |  |                                 | (6    | ) |      |   | 79   |   |  |             |  |   | 0     |   |  |   | 73    |  
|Investment securities              |  |                                 | (18   | ) |      |   | 153  |   |  |             |  |   | (2    | ) |  |   | 133   |  
|Other interest-earning assets      |  |                                 | (12   | ) |      |   | 19   |   |  |             |  |   | (10   | ) |  |   | (3    | )
|                                   |  |                                 |       |   |      |   |      |   |  |             |  |   |       |   |  |   |       |  
|Total interest-earning assets      |  |                                 | 771   |   |      |   | 106  |   |  |             |  |   | (34   | ) |  |   | 843   |  
|                                   |  |                                 |       |   |     
|Interest expense:                  |  |                                 |       |   |      |   |      |   |  |             |  |   |       |   |  |   |       |  
|Deposits                           |  |                                 | 44    |   |      |   | 266  |   |  |             |  |   | 3     |   |  |   | 313   |  
|Short-term FHLB advances           |  |                                 | 333   |   |      |   | (56  | ) |  |             |  |   | (84   | ) |  |   | 193   |  
|Long - Term FHLB advances          |  |                                 | 1,000 |   |      |   | (110 | ) |  |             |  |   | (419  | ) |  |   | 471   |  
|Junior Subordinated Debentures     |  |                                 | 0     |   |      |   | 116  |   |  |             |  |   | 0     |   |  |   | 116   |  
|Other liabilities                  |  |                                 | 0     |   |      |   | 0    |   |  |             |  |   | 0     |   |  |   | 0     |  
|                                   |  |                                 |       |   |      |   |      |   |  |             |  |   |       |   |  |   |       |  
|Total interest-bearing liabilities |  |                                 | 1,377 |   |      |   | 216  |   |  |             |  |   | (500  | ) |  |   | 1,093 |  
|                                   |  |                                 |       |   |      |   |      |   |  |             |  |   |       |   |  |   |       |  
|Change in net interest income      |  | $                               | (606  | ) |      | $ | (110 | ) |  |             |  | $ | 466   |   |  | $ | (250  | )
|                                   |  |                                 |       |   |      |   |      |   |  |             |  |   |       |   |  |   |       |  



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##### Table of Contents

Provision for Loan Losses. The Company charges provisions for loan losses to earnings to maintain
the total allowance for loan losses at a level management considers adequate to provide for losses inherent in the loan portfolio as of the balance sheet date. In determining the provision, management considers a number of factors such as existing
loan levels, prior loss experience, current economic conditions and the probability of these conditions affecting existing loans. The Company established provisions for losses on loans of $48,000 for the three months ended June 30, 2005, as compared
to $89,000 for the three months ended June 30, 2004. Loan chargeoffs for the three months ended June 30, 2005 were $78,000 as compared to $225,000 for the three months ended June 30, 2004 a decrease of $147,000. The decrease in loan chargeoffs was
due to prevailing low loan delinquency and a decrease in actual losses in the Banks consumer loan portfolio. Loan recoveries were $46,000 for the three months ended June 30, 2005 compared to $86,000 for the three months ended June 30, 2004.
Non performing loans at June 30, 2005 and June 30, 2004 were $1.1 million . The total loss allowance allocated to loans is $2.7 million. In establishing such provisions, management considered an analysis of the risk inherent in the loan portfolio.
For additional information see Asset Quality.



Other
Income.Other income increased by $880,000, or 328.4% from $268,000 for the three months ended June 30, 2004 to $1.1 million for the three months ended June 30, 2005. The increase in other income for the three months ended June 30, 2005
was primarily attributable to the one time gain of $848,000 associated with Harland Financial Solutions, Inc. cash acquisition of outstanding shares of the common stock of Intrieve Incorporated, which included the shares owned by Baltimore County
Savings Bank, F.S.B., the Companys wholly owned subsidiary. The Company could realize additional gains of up to $60,000 after tax during the year following the closing of the acquisition if certain additional criteria specified in the
acquisition agreement are satisfied.



Non-interest
Expenses. Total non-interest expenses increased by $214,000, from $4.0 million for the three months ended June 30, 2004 to $4.2 million for the three months ended June 30, 2005. Salaries and related expenses, remained stable at $2.3 million for
the three months ended June 30, 2004 and June 30, 2005. Data processing expense increased $102,000, from $389,000 for the three months ended June 30, 2004 to $491,000 for the three months ended June 30, 2005. The increase in data processing expenses
was primarily due to the increased number of accounts to service. Occupancy expenses increased by $113,000, from $418,000 for the three months ended June 30, 2004 to $531,000 for the three months ended June 30, 2005. This was primarily due to the
increased cost to operate the two additional branches opened last quarter. These increases were partially offset by a decrease in telephone, postage and office supplies expense by $33,000, from $143,000 for the three months ended June 30, 2004 to
$110,000 for the three months ended June 30, 2005.



Income
Taxes. The Companys income tax expense was $217,000 and $61,000 for the three months ended June 30, 2005 and 2004, respectively. The Companys effective tax rates were 28.9 % and 20.7% for the three months ended June 30, 2005 and
2004, respectively. The Companys effective tax rate increased for the three months ended June 30, 2005 as compared to the same quarter in the prior year as the Companys taxable income increased relative to its tax-exempt income.



21



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##### Table of Contents

Commitments, Contingencies and Off-balance Sheet Risk



The Company is a party to financial instruments with off-balance sheet risk
including commitments to extend credit under existing lines of credit and commitments to sell loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated
balance sheets.



Off-balance sheet financial instruments whose
contract amounts represent credit and interest rate risk are summarized as follows:



|                                                                                                |  |                |        |                   |   |       
|----------------------------------------------------------------------------------------------- |  | -------------- | ------ | ----------------- | - | ------
|                                                                                                |  | June 30,2005   |        | September 30,2004
|                                                                                                |  | (In thousands)
|Commitments to originate new loans                                                              |  | $              | 14,414 |                   | $ | 7,616 
|Unfunded commitments to extend credit under existing equity line and commercial lines of credit |  |                | 24,122 |                   |   | 24,330
|Commercial letters of credit                                                                    |  |                | 672    |                   |   | 634   



Commitments to
originate new loans or to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally expire within 30 to 45 days. Most equity line commitments for the
unfunded portion of equity lines are for a term of 20 years, and commercial lines of credit are generally renewable on an annual basis. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on managements credit evaluation of the borrower.



22



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##### Table of Contents

Contractual Obligations



As of June 30, 2005



|                                   |  |                        |         |            |   |            |  |              |         |       |   |        |  |   |        
|---------------------------------- |  | ---------------------- | ------- | ---------- | - | ---------- |  | ------------ | ------- | ----- | - | ------ |  | - | -------
|                                   |  | Payments due by period
|                                   |  | (In thousands)        
|                                   |  | Less than 1Year        |         | 1 3 Years |   | 4 5 Years |  | Over 5 Years |         | Total
|Time Deposits                      |  | $                      | 182,710 |            | $ | 136,555    |  | $            | 84,765  |       | $ |       |  | $ | 404,030
|Long-term borrowings               |  |                        |        |            |   | 60,000     |  |              | 28,000  |       |   |       |  |   | 88,000 
|Junior Subordinated Debentures     |  |                        |        |            |   |           |  |              |        |       |   | 23,197 |  |   | 23,197 
|Service contracts                  |  |                        | 1,011   |            |   | 1,529      |  |              | 1,529   |       |   | 1,020  |  |   | 5,089  
|Lease obligations                  |  |                        | 1,070   |            |   | 2,702      |  |              | 1,387   |       |   | 5,909  |  |   | 11,068 
|                                   |  |                        |         |            |   |            |  |              |         |       |   |        |  |   |        
|Total contractual cash obligations |  | $                      | 184,791 |            | $ | 200,786    |  | $            | 115,681 |       | $ | 30,126 |  | $ | 531,384
|                                   |  |                        |         |            |   |            |  |              |         |       |   |        |  |   |        



Asset Quality



At June 30, 2005, the Company had approximately $1.2 million in
non-performing assets (nonaccrual loans, repossessed assets and foreclosed real estate) or .15% of total assets. At September 30, 2004, non-performing assets were $905,000 or .11% of total assets. The Banks net charge-offs for the three months
ended June 30, 2005 were $20,000. The Banks allowance for loan losses was $2.7 million at June 30, 2005 and $2.6 million at September 30, 2004.



The following table presents an analysis of the Companys non-performing assets:



|                                                                         |  |                 |       |   |                      |   |     |  
|------------------------------------------------------------------------ |  | --------------- | ----- | - | -------------------- | - | --- | -
|                                                                         |  | At June 30,2005 |       |   | At September 30,2004 |  
|                                                                         |  | (In thousands)  |      
|Nonperforming loans:                                                     |  |                 |       |   |                      |   |     |  
|Nonaccrual loans:                                                        |  |                 |       |   |                      |   |     |  
|Single Family residential                                                |  | $               | 1,019 |   |                      | $ | 266 |  
|Multi-family residential                                                 |  |                 |      |   |                      |   |    |  
|Commercial Real Estate                                                   |  |                 | 20    |   |                      |   | 606 |  
|Construction                                                             |  |                 |      |   |                      |   |    |  
|Commercial Loans                                                         |  |                 |      |   |                      |   |    |  
|Land                                                                     |  |                 | 70    |   |                      |   |    |  
|Consumer Loans                                                           |  |                 | 26    |   |                      |   |    |  
|                                                                         |  |                 |       |   |                      |   |     |  
|Total Nonaccrual loans                                                   |  |                 | 1,135 |   |                      |   | 872 |  
|Loans 90 days past due and accruing                                      |  |                 |      |   |                      |   |    |  
|Restructured loans                                                       |  |                 |      |   |                      |   |    |  
|                                                                         |  |                 |       |   |                      |   |     |  
|Total nonperforming loans                                                |  |                 | 1,135 |   |                      |   | 872 |  
|Other non-performing assets                                              |  |                 | 89    |   |                      |   | 33  |  
|                                                                         |  |                 |       |   |                      |   |     |  
|Total nonperforming assets                                               |  | $               | 1,224 |   |                      | $ | 905 |  
|                                                                         |  |                 |       |   |                      |   |     |  
|Nonperforming loans to loans receivable, net                             |  |                 | .26   | % |                      |   | .23 | %
|Nonperforming assets as a percentage of loans and foreclosed real estate |  |                 | .28   | % |                      |   | .23 | %
|Nonperforming assets to total assets                                     |  |                 | .15   | % |                      |   | .11 | %





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The following table sets forth an analysis of the Banks allowance for loan losses for the periods indicated.



|                                                                        |  |                                  |       |   |      |   |       |  
|----------------------------------------------------------------------- |  | -------------------------------- | ----- | - | ---- | - | ----- | -
|                                                                        |  | For the Nine Months EndedJune 30 |      
|                                                                        |  | 2005                             |       |   | 2004 |  
|                                                                        |  | (Dollars in thousands)           |      
|Balance at beginning of period                                          |  | $                                | 2,587 |   |      | $ | 2,698 |  
|                                                                        |  |                                 
|Loans charged-off:                                                      |  |                                  |       |   |      |   |       |  
|Real estate mortgages:                                                  |  |                                  |       |   |      |   |       |  
|Single-family residential                                               |  |                                  |      |   |      |   |      |  
|Multi-family residential                                                |  |                                  |      |   |      |   |      |  
|Commercial                                                              |  |                                  |      |   |      |   |      |  
|Construction                                                            |  |                                  |      |   |      |   |      |  
|Commercial Loans                                                        |  |                                  |      |   |      |   |      |  
|Consumer                                                                |  |                                  | (284  | ) |      |   | (907  | )
|                                                                        |  |                                  |       |   |      |   |       |  
|Total charge-offs                                                       |  |                                  | (284  | ) |      |   | (907  | )
|Recoveries:                                                             |  |                                  |       |   |      |   |       |  
|Real estate mortgage:                                                   |  |                                  |       |   |      |   |       |  
|Single-family residential                                               |  |                                  |      |   |      |   |      |  
|Multi-family residential                                                |  |                                  |      |   |      |   |      |  
|Commercial                                                              |  |                                  |      |   |      |   |      |  
|Construction                                                            |  |                                  |      |   |      |   |      |  
|Commercial loans secured                                                |  |                                  |      |   |      |   |      |  
|Consumer                                                                |  |                                  | 264   |   |      |   | 241   |  
|                                                                        |  |                                  |       |   |      |   |       |  
|Total recoveries                                                        |  |                                  | 264   |   |      |   | 241   |  
|Net loans charged-off                                                   |  |                                  | (20   | ) |      |   | (666  | )
|Provision for loan losses                                               |  |                                  | 168   |   |      |   | 356   |  
|                                                                        |  |                                  |       |   |      |   |       |  
|Balance at end of period                                                |  | $                                | 2,735 |   |      | $ | 2,388 |  
|                                                                        |  |                                  |       |   |      |   |       |  
|Ratio of net charge-offs to average loans outstanding during the period |  |                                  | .01   | % |      |   | .18   | %
|                                                                        |  |                                  |       |   |      |   |       |  



Regulations require
that the Company classify its assets on a regular basis. There are three classifications for problem assets: substandard, doubtful and loss. The Company regularly reviews its assets to determine whether any assets require classification or
re-classification. At June 30, 2005, the Company had $1.8 million in classified assets, consisting of $1.7 million in substandard and loss loans, $0 in foreclosed real estate and $ 89,000 in other repossessed assets. At September 30, 2004, the
Company had $1.6 million in substandard and loss loans, consisting of $1.6 million in loans, $0 in foreclosed real estate and $33,000 in other repossessed assets.



In addition to regulatory classifications, the Company also classifies as special mention assets that are
currently performing in accordance with their contractual terms but may become classified or non-performing assets in the future. At June 30, 2005, the Company has identified approximately $1.5 million in assets classified as special mention.



Liquidity and Capital Resources



At June 30, 2005, the Bank exceeded all regulatory minimum capital
requirements. For information comparing the Banks tangible, core and risk-based capital levels to the regulatory requirements, see Note 5 of Notes to Consolidated Financial Statements.



The Companys primary sources of funds are deposits and proceeds from
maturing investment securities and mortgage-backed securities and principal and interest payments on loans. While maturities and scheduled amortization of mortgage-backed securities and loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic conditions, competition and other factors.



The primary investing activities of the Company are the origination of loans and the purchase of investment securities and mortgage-backed securities.
During the nine months ended June 30, 2005 and 2004, the Company had



24



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##### Table of Contents

$139.0 million and $91.8 million, respectively, of loan originations. During the nine months ended June 30, 2005 and 2004, the Company purchased investment
securities in the amounts of $11.1 million and $78.6 million, respectively, and mortgage-backed securities in the amounts of $15.8 million and $59.3 million, respectively. The primary financing activity of the Company is the attraction of savings
deposits.



The Company has other sources of liquidity if there
is a need for funds. The Bank has the ability to obtain advances from the FHLB of Atlanta in the amount of $159.0 million as of June 30, 2005. In addition, securities in the available for sale portfolio provide liquidity and the Company has the
immediately liquid resources of cash and cash due from banks, federal funds sold and securities purchased under resale agreements if needed.



The Bank is required to maintain adequate levels of liquid assets as defined by OTS regulations. The Banks average daily liquidity ratio for the
month of June was approximately 44.5%. Management seeks to maintain a relatively high level of liquidity in order to retain flexibility in terms of investment opportunities and deposit pricing. Because liquid assets generally provide for lower rates
of return, the Banks relatively high liquidity will, to a certain extent, result in lower rates of return on assets.



The Companys most liquid assets are cash, interest-bearing deposits in other banks and federal funds sold, which are short-term, highly liquid
investments with original maturities of less than three months that are readily convertible to known amounts of cash. The levels of these assets are dependent on the Companys operating, financing and investing activities during any given
period. At June 30, 2005, cash, interest-bearing deposits in other banks and federal funds sold were $19.9 million, $1.5 million and $328,000, respectively.



The Company anticipates that it will have sufficient funds available to meet its current commitments. Certificates of deposit which are scheduled to
mature in less than one year at June 30, 2005 totaled $182.7 million. Based on past experience, management believes that a significant portion of such deposits will remain with the Bank. The Bank plans on paying competitive rates to retain
certificate deposits. Should the Bank experience significant deposit run off the Bank anticipates that it will have sufficient liquidity to meet its needs as outlined above. The Bank is a party to financial instruments with off-balance-sheet risk
made in the normal course of business to meet the financing needs of its customers. These financial instruments are standby letters of credit, lines of credit and commitments to fund mortgage loans and involve to varying degrees elements of credit
risk in excess of the amount recognized in the statement of financial position. The contract amounts of those instruments express the extent of involvement the Company has in this class of financial instruments and represents the Companys
exposure to credit loss from nonperformance by the other party.



The Company generally requires collateral or other security to support financial instruments with off-balance-sheet credit risk. At June 30, 2005, the Company had commitments under standby letters of credit and lines of credit and
commitments to originate mortgage loans of $672,000, $24.1 million and $14.4 million respectively.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



Market risk is the possible chance of loss from unfavorable changes in market prices and rates. These changes may result in a reduction of current and
future period net interest income, which is the favorable spread earned from the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities.



The Company considers interest rate risk to be its most significant market
risk, which could potentially have the greatest impact on operating earnings. The structure of the Companys loan and deposit portfolios is such that a significant change in interest rates may adversely impact net market values and net interest
income.



The Company monitors whether material changes in
market risk have occurred since September 30, 2004. The Company does not believe that any material changes in market risk exposures occurred since September 30, 2004.



Item 4. Controls and Procedures



As of the end of the period covered by this report, management of the Company carried out an evaluation, under the supervision and with the participation of the Companys principal executive officer and principal financial officer, of
the effectiveness of the Companys disclosure controls and procedures. Based on this evaluation, the Companys principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures
are effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported,



25



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##### Table of Contents

within the time periods specified in the Securities and Exchange Commissions rules and forms. It should be noted that the design of the Companys
disclosure controls and procedures is based in part upon certain reasonable assumptions about the likelihood of future events, and there can be no reasonable assurance that any design of disclosure controls and procedures will succeed in achieving
its stated goals under all potential future conditions, regardless of how remote, but the Companys principal executive and financial officers have concluded that the Companys disclosure controls and procedures are, in fact, effective at
a reasonable assurance level.



There have been no changes in
the Companys internal control over financial reporting (to the extent that elements of internal control over financial reporting are subsumed within disclosure controls and procedures) identified in connection with the evaluation described in
the above paragraph that occurred during the Companys last fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



PART II. OTHER INFORMATION



Item 1. Legal Proceedings



None.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds



None.



Item 3. Defaults Upon Senior Securities



None.



Item 4. Submission of Matters to a Vote of Security-Holders



None



Item 5. Other Information



None.



Item 6. Exhibits



The following
exhibits are filed herewith:



| |  |               |  |                                                        
| |  | ------------- |  | -------------------------------------------------------
| |  | ExhibitNumber |  | Title                                                  
| |  | 31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer
| |  |              
| |  | 31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer
| |  |              
| |  | 32            |  | Section 1350 Certification                             



26



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                      |  |                                             
|--------------------- |  | --------------------------------------------
|                      |  | BCSB BANKCORP, INC.                         
|                      | 
|Date: August 12, 2005 |  | /s/ Gary C. Loraditch                       
|                      |  | Gary C. Loraditch                           
|                      |  | President                                   
|                      |  | (Principal Executive Officer)               
|                      | 
|Date: August 12, 2005 |  | /s/ Bonnie M. Klein                         
|                      |  | Bonnie M. Klein                             
|                      |  | Vice President and Treasurer                
|                      |  | (Principal Financial and Accounting Officer)